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Work In Canada's Gig Economy? Here's What You Need To Know To Avoid A Huge Tax Bill

Record-keeping is key to making sure you pay as little as possible at tax time.
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The traditional, permanent full-time job is dying a slow death in Canada, and precarious work in the new "gig economy" is taking its place. This story is part of Precariously Taxed, a HuffPost Canada series that looks at how gig economy and contract workers can optimize their finances when it comes to tax time.

Life in the gig economy is often a matter of perspective. For some, the rise of these pay-per-gig jobs is a sign that life is getting harder and more unstable in our economy. For others, it's a symbol of economic freedom, the ability to choose where and when you work, and how much.

Either way, there's probably one part no one likes: The part where you have to keep track of, and pay, your own taxes.

If you're in the gig economy, for example as an Uber driver or an Airbnb host, you are effectively self-employed. Unlike a traditional employer, the app you do business with won't deduct taxes from your paycheque and send the money to the government; you're responsible for all that yourself.

Below are some of the essential things you should know at (and before) tax time if you're in the gig economy. But first, a reminder that the tax-filing deadline is April 30. For self-employed people, it's June 15. But if you owe any money, that money is due April 30 — so don't wait till June to crunch the numbers.

Keep track of income

This is the easy part. If your gig is through an app, that app will have records of all your transactions, and the money that exchanged hands.

Apps like Airbnb, HomeAway, Lyft and Uber give you access to records of your earnings. If you earn money outside those apps, you'll have to keep track of that yourself. In most cases, an Excel spreadsheet will do the trick.

But it's still up to you to pay your taxes on the income you earned. Which means that unless you want to pay the absolute maximum in tax the government can legally squeeze out of you, you will need to...

Keep track of expenses

If you're a salaried employee, there are very few business expenses you can legitimately claim to reduce your taxes. Your employer is covering those costs, so they get the tax break.

In the gig economy no one covers these costs for you, so you can claim them to reduce the income on which you owe taxes.

But to do this right might require a change in mindset. For one thing, you need to start keeping a record of anything you buy related to your paid gig.

Simply put, if you don't keep track of expenses, you can and probably will face a higher tax bill than you would otherwise need to pay.

Watch: What you need to know before filing your federal taxes this year. Story continues below.

"Record-keeping is key," says Aurèle Courcelles, assistant vice-president at IG Wealth Management and an accountant by trade.

"You want to be very meticulous in the record-keeping both on income side and expenses side, and that becomes maybe more work when you're talking about ride-sharing or Airbnb hosts."

The simplest thing you can do is keep a log book where you track your expenses. There are user-friendly accounting apps out there as well, but "in many cases ... a simple spreadsheet on your phone or laptop is all you need," he adds.

How do I declare income?

Most people in the gig economy — Uber drivers and couriers on contract, for example — would fill out the T-2125 form, the statement of professional or business activities.

Those renting out properties on HomeAway, Airbnb or similar sites would fill out a T-776 statement of real estate rentals. But if a host provides additional services for money, like meals or laundry, they have to declare that as business income, not rental income.

Plenty of things you can deduct

Essentially, anything you spend money on that is directly related to your gig is a legitimate expense.

Keep the little things in mind. As an Uber driver, you may remember to keep your gas receipts, but how about oil changes, tune-ups and windshield wiper fluid? Those are all deductible, as are your car insurance premiums and even those water bottles you offer riders so they give you a higher rating.

But only deduct the part of those expenses that actually went into your business. If you use your car for Uber and for personal use, you need to keep track of the kilometres driven, and calculate what percentage of use was for business. Only that percentage can be deducted.

Keeping track of kilometres is crucial because "that small piece of information can either validate all of (an Uber driver's) claims or allow the CRA to deny them all," said Lisa Gittens, a senior tax professional at H&R Block.

Airbnb hosts can deduct things such as linens and sheets, and the toiletries they buy for guests' use. You can even deduct the Netflix or cable bill, but if you're only renting out a portion of your property, then you can only claim a portion of that expense.

If you're an independent construction contractor, you can deduct your steel-toed boots, hard hat, tools and other materials you need to work on site.

GST/HST: Another opportunity to get money back

In the gig economy, you have to remit sales taxes to the government — GST or HST, depending on the province. But you can also get a tax credit for the sales tax you yourself pay on business expenses.

Self-employed people have to register for a GST number if their earnings exceed $30,000, but as of 2017, ride-hailing drivers have to register for a GST number (and a QST number in Quebec) no matter how much or little they earn. You have to register for one about the time you drive your first paid gig.

"Always ask questions. ... (When it comes to taxes) there are no embarrassing questions."Lisa Gittens, H&R Block

Apps such as Airbnb and Uber keep track of the sales taxes they collect on your behalf, but you still have to remit those taxes to the government yourself. (The exception is Quebec, where Uber will remit those taxes to the government for you.) You can use the app's records to know how much money to set aside for taxes.

But as an independent business, you can claim a tax credit for the GST/HST on your business expenses, in the form of an input tax credit. You can claim the GST on fuel costs, oil and tire changes — any legitimate business expense on which you paid sales tax.

But once again, keeping track of your expenses is crucial if you want to claim this credit.

Don't guess, ask someone

Finally, if you're not sure about some element of your taxes, seek help. If you can't afford an accountant, there is free tax software out there, and their paid versions are typically less expensive than hiring a person to do your taxes, and typically come with online and phone assistance.

There are even free tax clinics, where volunteers can answer your questions.

"Always ask questions," Gittens says. When it comes to taxes, "there are no embarrassing questions."

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